Gary Shilling has gone from tilting toward seven-risk off trades,
to being "balanced between 'risk-on' and 'risk-off' as we prepare
to move either way as the fog clears." This comes as the global
economic outlook remains mixed and as the Fed takes its time
clarifying its plans to taper its $85 billion in monthly asset
purchases.

These trades include: 1. Modestly long treasury bonds. "They've
been beaten up, maybe too much so. Also, they serve as an anchor
against a sudden Grand Disconnect-closing shock that something
like the government shutdown and the looming debt ceiling crisis
may precipitate." 2. Long the dollar. 3. Short emerging market
stocks and bonds. 4. Long U.S. dividend-rich stocks.

Shilling continues to be cautious and "advocates heavy cash
positions."

"The percentage of S&P 500 stocks with P/E ratios within 20%
of the index level is near its highest level in nearly 20 years
(the height of the financial crisis notwithstanding)," writes
Brian Belski of BMO Capital Markets. This suggests that investors
are valuing stocks that have different earnings growth profiles
in a similar manner. "From our perspective, the main culprit has
been the strong outperformance of value strategies this year."

"We believe that as QE has driven stock prices higher, investors
have sought out more attractively priced areas of the market. The
result has been a surge in price multiples for areas at the lower
end of the valuation spectrum making market valuation more
homogeneous.

"Going forward we would urge investors to avoid such singular
investment approaches and instead incorporate other variables
(such as earnings growth) when making decisions. This is
particularly relevant in the current environment since earnings
growth among US stocks has become increasingly more disperse
(Exhibit 2, right) – a trend we expect to continue given the
stage of the current cycle."

While we've been bombarded with headlines about the S&P 500
hitting new all-time highs, the inflation adjusted index tells a
different story. JC Parets at All Star Charts writes that the
inflation adjusted chart shows "is the consistency of the lower
lows and lower highs since the year 2000. Hardly the uptrend and
bull market that we hear about so often."

"I think it’s important that when I speak with investors, they
understand how in Real terms, not only is the S&P500 not at
all-time highs, but actually down 20% over the last 13.5 years."

UBS Financial Services largest wealth management team in San
Diego that managed $540 million in client assets has gone
independent, according to Investment News. The team includes Ajay
K. Gupta, and two other partners that have registered with the
SEC. Gupta and his partners moved because they wanted "access to
new technology, a broader choice in clients and independence as a
fiduciary adviser to its 119 family clients," reports Trevor
Hunnicutt at Investment News. Gupta will write UBS a seven-figure
check.

The ratio of companies providing negative earnings guidance, to
those providing positive forward guidance, has been rising. This
is usually interpreted as a sign of excess optimism. But
Deutsche Bank's David Bianco writes that "investors should ignore
these aggregated stats."

"We have repeatedly argued that guidance ratios are noisy and
unreliable. Only 20% of companies provide quarterly guidance, the
mix changes from period to period, the ratio is not earnings
weighted and does not differentiate between a 1% or 10% change in
guidance.

"Bottom-up EPS growth and estimate revision trends are more
insightful. Btm-up 3Q S&P EPS declined only 3.2% among the
least in two years and est. EPS growth just prior to reporting is
the highest in over a year at 4.1%. Our $28 3QE EPS implies the
usual 3-4% weighted average beat."